Uganda’s oil: lessons on governance and the resource curse

The successes and failures of other oil producing countries show that technical expertise can take you only so far. Good legislation can be rapidly undermined by bad governance.

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“The domination of Ugandan politics by a single party, and increasingly by President Museveni, has undermined civil society” Photograph: Darrin Zammit Lupi/Reuters

As fresh column inches are written about Uganda‘s oil resources (some exposing corruption allegations, others claiming that the government scarcely has enough money to begin refining) it is clear that managing a natural resource is a daunting challenge. Uganda, anticipating commercial production in the next few years, has itself been gripped by intense debate. [link] Waste, corruption, environmental catastrophe and conflict in a country like Nigeria are a stark warning. The spectre of the “resource curse” looms large.

What can a state like Uganda learn from resource-producing states elsewhere? The problem is not a lack of information – there is a vast specialist literature, covering everything from local content to macro-economic stabilisation mechanisms. There is also a flourishing industry of experts and advisers, both state and non-state. Uganda, for example, has benefited from a multi-million dollar partnership with the Norwegian government, and has some high-quality local and international NGOs working on various aspects of the oil question.

But technical expertise will only get you so far. There is growing consensus that getting the management challenges right – financial control, licensing and so on – is immaterial if the rules are not respected. Good legislation can be rapidly undermined by bad governance. Chad provides an example: a state-of-the-art legal framework for its oil industry, developed in partnership with the World Bank, collapsed within a few years.

So governance is key. But it is a slippery term. Though indices such as those produced by the World Bank or Mo Ibrahim Foundation are useful, they don’t capture the unique dynamic of politics and power in any given state. This presents a serious challenge in identifying lessons for Uganda. No two places are alike, and policies cannot simply be imported wholesale; what worked in Norway may not help in Nigeria. We also need to acknowledge what might be called the governance Catch 22: it is those places where governance is weakest that external advice is least likely to be heeded.

Expanding the idea of governance away from arid technicalities towards a broader and deeper understanding is essential. Recent work has begun to flesh out this perspective. In Indonesia, Botswana, Chile and Norway – very different countries with very different histories – research has uncovered four long-term factors that seem to have been critical in successful long-term resource management. These are: broadly shared aspirations for peaceful development, strong apolitical constituencies able to counsel and restrain government, significant technical expertise, and popular buy-in to plans for spending the resulting revenues.

These four factors offer a framework to understand long-term social and political processes. Uganda, for instance, is fortunate in that its violent past has resulted in a widely shared commitment to peace and development, despite latent divisions. Likewise, the slow pace of oil exploration has allowed technical expertise to be built, though there are risks that centralised decision-making will marginalise it. Conversely, the domination of Ugandan politics by a single party, and increasingly by president Museveni himself, has undermined civil society. No commercial class has yet developed to take up the slack. And the concentration of power in the president – particularly over big issues such as oil – has left a lot of Ugandans, already remote and rural, further disconnected from politics.

This framework then allows the options open to Uganda to be assessed in context. Transparency is a good example. Uganda is relatively cohesive, but toxic rumours, notably over corruption, are already circulating. The Ugandan government has rejected an oversight mechanism and refused to release production sharing agreements, in part because transparency is seen as an attack on government. But if access to reliable information is instead understood as preventing rumours, misinformation and speculation, thus maintaining Uganda’s long-term social cohesion, then it is not a threat to government but rather in the interest of all. Ghana’s public interest and accountability committeeis perhaps a good model.

Another is the question of how to manage spending. Many advocate a sovereign wealth fund, or saving a fixed percentage of revenues. Draft legislation would allow everything to be spent immediately – understandable, given Uganda’s development needs. But it is possible that this would undermine the development of an agricultural commercial class, able to moderate government in the long term – agriculture is export-led, and so is vulnerable to currency appreciation. And currency appreciation can happen if too much is spent too quickly – hence why a sovereign wealth fund or limit on spending might be vital, for population and government alike.

Public consultation as carried out in Trinidad and Tobago may generate popular buy-in to spending plans. Separating government from industry through an independent petroleum authority and national oil company – as Norway has done – might protect technical expertise from political influence. There is much Uganda can learn from around the world. But there are no quick fixes and no right answers, beyond the overriding imperative of political cohesion. The resource curse can be overcome if Ugandans work together and look to the long term.

Three years later and we ask ourselves should we really ask oil producing countries to avoid hydro carbon development to the maximum extent possible and strengthen good-governance and transparency, or should we better ask governments to keep the oil in the soil?

Why Should we Ask African Governments to Keep the Oil in the Soil?

“If governments are determined to implement their climate policies [eg. Paris Agreement], a focus on efficiency, although important, will not achieve absolute reductions. According to the UK’s Carbon Tracker Initiative and the Grantham Research Institute on Climate Change, part of the London School of Economics, the world’s ‘carbon budget’ is about 1.000 gigatons (Gt CO2) between now and 2050.

Total proven international fossil-fuel reserves already contain about 3 times as much carbon, according to the International Energy Agency’ ‘World Energy Outlook’. Most of the reserves are owned by governments or state energy firms; they could be left in the ground by public-policy choice, i.e., if governments took their own policy objectives seriously. Exploring and exploiting new sources of fossil fuels now means to propel CO2 emissions above 550 ppm. It is an irresponsible waste of money, and policy is called upon to stop this squandering of resources.

Oil and gas extraction, and coal mining, even using the most modern techniques, will always be dirty business. There is no ethical, environmental or social justification for mobilising reserves with above-average environmental and social impacts, including deep sea oil, tar sands, or fracking for shale gas, destroying riverine delta ecosystems and other wetlands, densely populated farmland, biodiverse forests or coral gardens.”

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